736 F.

2d 96
1984-1 Trade Cases 66,055

Thomas ENGLERT d/b/a Northeast Electrical Inspection

Agency, Appellant,
v.
CITY OF McKEESPORT and Middle Department Inspection
Agency, Appellees.
No. 83-5507.

United States Court of Appeals,

Third Circuit.
Argued March 5, 1984.
Decided June 11, 1984.

James P. Hollihan (Argued), Manion, Alder & Cohen, P.C., Pittsburgh,

Pa., for appellant.
Michael J. Boyle (Argued), William G. Boyle, Meyer, Unkovic & Scott,
Pittsburgh, Pa., for Middle Dept. Inspection Agency.
John F. Cambest (Argued), Conway, Meyer & Cambest, Pittsburgh, Pa.,
for City of McKeesport.
Before HUNTER and BECKER, Circuit Judges, and HOFFMAN,*
District Judge.
OPINION OF THE COURT
JAMES HUNTER III, Circuit Judge:

This appeal arises from an order of the district court, 564 F.Supp. 375,
dismissing an antitrust action for lack of subject matter jurisdiction. Plaintiff,
Thomas Englert ("Englert"), brought this suit against the City of McKeesport
("McKeesport") and Middle Department Inspection Agency ("Middle
Department"), alleging, inter alia, violations of sections 1 and 2 of the Sherman
Act, 15 U.S.C. Secs. 1 & 2 (1982). The United States District Court for the

Western District of Pennsylvania granted defendants' motions to dismiss for

lack of subject matter jurisdiction, relying on the analysis outlined in CardioMedical Associates, Ltd. v. Crozer-Chester Medical Center, 552 F.Supp. 1170
(E.D.Pa.1982). Cardio-Medical has since been reversed by this court, 721 F.2d
68 (3d Cir.1983). In accordance with our reasoning in that case, we will reverse
the present case and remand to the district court.
I.
2

Thomas Englert is the proprietor of Northeast Electrical Inspection Agency

("Northeast Electrical"), engaged in the business of inspecting electrical work
on public and private construction projects in western Pennsylvania. 1 Englert
inspects the completed work to ensure compliance with the National Electrical
Code and local building and electrical codes. Englert's inspection fee is paid by
the electrical contractor, but the ultimate cost is generally borne by the owner
of the building as part of the total cost of the building or project.

Defendant Middle Department is a rival electrical inspection agency, also doing

business in the western Pennsylvania area. On May 5, 1982, the City Council
of McKeesport passed a resolution granting Middle Department the exclusive
right to perform electrical inspections within the city. As a result of this
exclusive arrangement, Northeast Electrical is foreclosed from inspecting
electrical work in McKeesport.

Englert brought this action against Middle Department and McKeesport,

alleging that their exclusive arrangement constituted a restraint of trade,
monopolization, and attempted monopolization in violation of the Sherman Act,
15 U.S.C. Secs. 1 & 2 (1982). Englert also brought a claim for violation of his
rights under the fourteenth amendment, along with various pendent state
claims. In this appeal we need only consider the Sherman Act claims.2

Rather than answering Englert's complaint, each defendant moved immediately

for dismissal of the claims against it. Both alleged failure to state a claim upon
which relief could be granted, Fed.R.Civ.P. 12(b)(6); Middle Department
additionally challenged the district court's jurisdiction over the subject matter of
the claims, Fed.R.Civ.P. 12(b)(1), alleging an insufficient nexus with interstate
commerce.

Englert amended his complaint in response to the jurisdictional challenge,

incorporating a number of allegations designed to make out the requisite effect
on interstate commerce. In particular, Englert alleged that much of the labor,

material and other services involved in building construction in western

Pennsylvania and McKeesport is supplied from out of state; that many of the
electrical and general contractors and owners who paid the electrical inspection
fees were from outside Pennsylvania; and that many of the projects inspected
were financed with funds from the federal Department of Housing and Urban
Development.
7

Defendants persisted in their motions to dismiss. On June 7, 1983, the district

court granted the motions and dismissed Englert's suit for want of federal
jurisdiction. Relying on the district court's analysis in Cardio-Medical
Associates, Ltd. v. Crozer-Chester Medical Center, 552 F.Supp. 1170
(E.D.Pa.1982), the court below ruled that Englert's jurisdictional allegations
were not sufficient to establish a substantial and adverse impact on interstate
commerce. This appeal arises from that dismissal.

II.
8

The district court in Cardio-Medical held that a mere "shifting" of interstate

commerce from one entity to another, without a net change in the amount of
commerce flowing across state lines, is not sufficient to engage the jurisdiction
of the federal courts. 552 F.Supp. at 1178.3 The district court in the present case
similarly ruled that the defendants' behavior, which allegedly shifted inspection
work away from Englert and to Middle Department, did not have the
"substantial and adverse effect" on interstate commerce required under Hospital
Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 743, 96 S.Ct. 1848,
1851, 48 L.Ed.2d 338 (1976).

Since the date of the order and opinion below, this court has reversed the
district court in Cardio-Medical and held that allegations of "shifting," standing
alone, are in fact sufficient to satisfy the Sherman Act's jurisdictional
requirement. 721 F.2d at 72-74.

10

It is clear to us, in light of Cardio-Medical's reading of the "substantial and

adverse effect" requirement, that the district court erred in dismissing Englert's
Sherman Act claims for want of subject matter jurisdiction. Taken as true, as
they must be, Englert's allegations are sufficient to withstand a Rule 12(b)(1)
motion. Englert has alleged that the fee charged for electrical inspections is in
many cases paid by out-of-state electrical and general contractors.4

11

The payment of fees for professional services is certainly "commerce" within

the meaning of the antitrust laws. See Goldfarb v. Virginia State Bar, 421 U.S.

773, 783-86, 95 S.Ct. 2004, 2011-2012, 44 L.Ed.2d 572 (1975). Under the rule
in our Cardio-Medical opinion, the allegation that defendants' arrangement has
shifted this interstate flow of fees to Middle Department and away from
Northeast Electrical and other inspection agencies, sufficiently alleges a
substantial and adverse effect on interstate commerce. We hold that Englert has
satisfied the Sherman Act's jurisdictional requirement.
12

Indeed, counsel for defendants conceded at oral argument that, in light of

Cardio-Medical, Englert's complaint is adequate to withstand challenge under
Rule 12(b)(1). Noting, however, that an effect on interstate commerce is an
element both of the jurisdictional standard and the substantive offense, see
Mortensen v. First Federal Savings & Loan Association, 549 F.2d 884, 890-91
(3d Cir.1977), defendants point out that their motions to the court below also
challenged the sufficiency of Englert's allegations of interstate effect under Rule
12(b)(6). Cardio-Medical dealt with a Rule 12(b)(1) challenge; defendants now
urge us to limit that case to Rule 12(b)(1) motions, and to hold that Rule 12(b)
(6) requires a greater impact on interstate commerce than is required by Rule
12(b)(1). More specifically, defendants are asking us to hold that while
"shifting" impacts interstate commerce sufficiently to confer subject matter
jurisdiction, it is not sufficient to satisfy the interstate component of the
substantive claim.

13

We find no merit to this position. The Supreme Court in Hospital Building Co.
v. Trustees of Rex Hospital, 425 U.S. 738, 96 S.Ct. 1848, 48 L.Ed.2d 338
(1976), squarely held that challenges to the sufficiency of the effect on
interstate commerce under Rule 12(b)(1) require no different analysis than
challenges under Rule 12(b)(6). "In either event, the critical inquiry is into the
adequacy of the nexus between respondents' conduct and interstate commerce
that is alleged in the complaint." Id. at 742 n. 1, 96 S.Ct. at 1851 n. 1.
Consequently, we reject defendants' contention that a greater effect on interstate
commerce is required to overcome a substantive challenge under Rule 12(b)(6)
than a jurisdictional challenge under Rule 12(b)(1).

III.
14

Accordingly, we will reverse the order of the district court dismissing Englert's
action for want of federal jurisdiction, and remand for proceedings consistent
with this opinion.

Honorable Walter E. Hoffman, United States District Judge for the Eastern

District of Virginia, sitting by designation

1

The facts we outline here are drawn almost entirely from the allegations of
Englert's complaint. This appeal arises from a Rule 12(b) motion to dismiss.
The defendants have not filed answers to Englert's complaint, and have made
no attempt to controvert Englert's factual allegations. For purposes of this
appeal, we must take these allegations to be true. See Mortensen v. First
Federal Savings & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977)

The lower court's dismissal of Englert's federal constitutional claims has not
been appealed to this court. Englert's pendent state claims were dismissed along
with the federal claims. See United Mine Workers v. Gibbs, 383 U.S. 715, 86
S.Ct. 1130, 16 L.Ed.2d 218 (1966). The lower court on remand should
reconsider its dismissal of the state claims in light of our reinstatement of
Englert's Sherman Act claims

For an enlightening critique of the district court's reasoning in Cardio-Medical,

see Note, Sherman Act "Jurisdiction" in Hospital Staff Exclusion Cases, 132
U.Pa.L.Rev. 121 (1983)

Englert has also alleged that many construction projects requiring electrical
inspection are financed with federal funds, and that federal funds pay the
inspection fee in these cases. These other allegations also would be sufficient to
meet the jurisdictional requirement of Secs. 1 and 2 of the Sherman Act. See
McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 100 S.Ct. 502,
62 L.Ed.2d 441 (1980)